Q My husband and I have our eye on a nice ‘fixer-upper’ for €120,000. It’s a bit of a project and needs about €100,000 to bring it up to scratch. We wonder how much can we borrow as second time buyers? Is it 80pc of the sale price, or 80pc of the house plus the cost of renovation works?
A As second-time borrowers you can borrow up to 80pc of the value of the home, according to head of credit at MyMortgages.ie Joey Sheahan. If you propose to spend in the region of €100,000 on construction, for example, you can borrow 80pc of the cost of the works once the value of the property increases by the amount of the works. Therefore, if you are keen on the house from your viewings, get an engineer, architect or quantity surveyor to cost the works.
So you’re thinking of buying a fixer-upper? Maybe it is a faded period charmer that hooked you, or an ugly bargain on a great street. But before you sign a contract, some hard questions will help you sort the diamond in the rough from the money pit.
Assess
When, halfway through a home renovation, TV presenters announce “Asbestos!’, building surveyors must scratch their heads. “It makes good telly, but that would have been evident if a good inspection was done on day one,” says Noel Larkin of Noel Larkin and Associates Chartered Building Surveyors. His top recommendation for those buying an old house is to get a building survey done first. This should eliminate surprises and indicate the cost of renovation.
New figures from the Central Bank show the average interest rate for new mortgages in Ireland is 2.79%
Ireland had the second highest rate in December but overtook Greece in January.
The average rate in the EU is 1.29%.
Joey Sheahan of MyMortgages.ie says while the difference in rates may seem small, it is significant:
“1% difference in your mortgage could be as much as 57,000 interest over the term, so if you have a 300,000 mortgage over 30 years that can be the difference of up to 57,000 over that term.”
On Friday 19th February, we received clarity on a firm decision that Ulster Bank will undertake a phased withdrawal from the Irish market.
The understandable uncertainty has led to many of their mortgage holders looking at moving their mortgage to another lender for a greater sense of security. We have received an influx of calls from mortgage holders with Ulster Bank, asking whether or not they should be looking to move their mortgage to a different bank and what their options are.
This process will take a number of years to complete and Ulster Bank continues to have a duty of care to current customers and obligations to fulfil in that regard, so mortgage holders should not be worried or anxious.
That said, it would be prudent to look at this time as a chance to review your current position mortgage-wise – primarily what rate you are paying, and how this compares to what is currently being offered in the market. Although Ulster Bank’s departure from the Irish market is not a positive development in the Irish banking sector – particularly, from both a competition and an employment perspective, the uncertainty surrounding Ulster Bank’s future could at least turn out to be a beneficial wake up call to mortgage holders who are paying rates in excess of what they could get elsewhere.
The arrival of Avant Money to the market, has seen many mortgage holders with mature mortgages, and/or a strong loan to value, switch to exceptional market-beating rates.
We are advising any Ulster Bank customer that is on a rate greater than 2.3% to review their options. But this doesn’t apply to Ulster Bank mortgage holders alone – anyone paying more than this, regardless of which lender they are with, should be talking to an expert to see if they can get a better deal either with their current lender or with a different provider. And don’t let whether you are on a fixed or variable rate stop you – you may well still have options to move.
If you would like to complete an initial assessment to see what potential savings you could make by switching, click here for the form and we will review and respond to you directly.
Should I switch?
Just like you shop around for cheaper or better car insurance or electricity provider, it’s worth reviewing your mortgage every few years to see if you can make savings.
What is Switching?
Switching is the term used to describe the process of changing mortgage provider. This is usually done to get a lower interest rate on your mortgage from a new lender with a view to saving money on interest.
Some people go through the entire term of their mortgage without considering whether their lender is offering them the best rate. However, it is prudent to review the terms of your mortgage on a regular basis – perhaps as part of a wider financial ‘health-check’. You don’t need to switch every year, but it’s a financially savvy move to take the time to consider the current market, the value of your property, and the interest rates on offer from all lenders on an ongoing basis.
My Neighbour is Doing it – Can I?
The answer is, most likely, yes. I estimate that one in every three mortgage holders would save by switching. (I am not including European Central Bank related tracker interest rates in these figures as they currently offer low interest rates given that the ECB base rate is 0%, meaning a typical tracker mortgage interest rate is approximately 1% and such mortgages have not been available in Ireland since 2008.)
If you have been on the same rate for more than three years, or you are coming to the end of a fixed rate period, then you should certainly review your options.
Regardless of whether you are a variable or a fixed rate mortgage holder, you could potentially save tens of thousands of euros over the remaining term.
The Myths and Misconceptions
– ‘I can’t switch if I’m on a fixed rate.’ Not true. You can break a fixed rate contract. We see many banks currently do not have a breakage fee however you may be charged a breakage fee by your lender, but the savings you make upon switching, plus, potentially, any cashback offer from a new lender, could more than cover the charges. In addition, due to the current low cost of funds available for banks, many don’t impose a fee for exiting a fixed rate contract. You will need to call your bank to check this, however.
Looking at Mick and Fiona for example, they have a home loan with €300,000 outstanding. They are currently on a fixed rate of 3.6% for the next two years with 28 years left on their mortgage term. They contact their bank to check the early fixed rate breakage fee and are advised that the fee is €1,050. They contact a mortgage broker who advises them that if they switch lender, they can obtain a two-year fixed rate of 2.3%, which will reduce their monthly payment from €1,418 to €1,211 which is a saving of €207 monthly or €2,484 annually or €4,968 over the two-year period. So, in this example, even though Mick and Fiona are liable to pay a breakage fee of €1,050, it is worthwhile as they will save €4,968 over the next two years alone.
Mick & Fiona
Before Switch
After Switch
Fixed 2 Yr interest rate 3.6%
Fixed 2 Yr interest rate 2.3%
Monthly repayment €1,418
Monthly repayment €1,211
Total savings over term €4,968*
*savings excluding breakage fee
– ‘I need to have a LTV of less than 80% on my home.’ Again, not true. While some lenders will offer you a better rate according to the amount of equity you have built up, you can still switch if your LTV is between 80% to 90%.
– ‘Switching is a long and difficult process.’ Not true. Switching can be straightforward with the help of an expert and some banks require less documentation for switchers than for a new application.
– ‘I’ll just end up spending any savings made on the legal costs of conveyancing’. (Conveyance is the legal term for processing the paperwork involved in buying and selling a property and transferring the deeds of ownership). Not true. You will know in advance, once you or your broker runs the numbers whether the savings made will outweigh any ancillary costs that may be incurred. If you stay with the same lender but move to a different rate, then you may not incur any additional costs.
Cash Back on Switching
The impact can be significant. If we look at Rua and Kerry’s experience, they took a €400,000 mortgage over 35 years at a three-year fixed interest rate of 3.6%. The interest rate they selected at the time of draw down was reasonably competitive and they also received upfront cashback from their lender. However, their rate is now changing to a higher variable rate of 4.2%. Their payments will be going to €1,805 monthly. They have tried to negotiate a lower variable rate with their current lender without success so they decided to switch to a lower variable rate of 2.95% with another lender which will reduce their monthly payments to €1,534. This will save them €268 monthly or €3,212 annually or €102,912 over the remaining 32 years of their mortgage. In addition, they receive €2,000 from the new lender, which covers the legal fees involved in switching.
Rua & Kerry
Before Switch
After Switch
Fixed 3 Yr interest rate 3.6%
Variable interest rate 2.95%
Monthly repayment €1,802
Monthly repayment €1,534
Total savings over term €102,912
What Will I Need?
If you decide to proceed with switching, you will need to go through the mortgage application process and submit your documentation. This varies from lender to lender. Typically, you will require the following documents:
– Passport Identification.
– One recent payslip, Employment Detail Summary and salary certificate.
– Three/six months recent current account statements – depends on lender requirement.
– 3 Most recent credit card statements.
– Most recent mortgage statement.
– Relevant application form and bank declaration.
Where Do I Start?
– Contact your existing lender to confirm your rate of interest, balance outstanding and term remaining on the mortgage.
– If you are on a fixed rate, ask your lender what fee, if any, they charge for breaking the mortgage contract.
– Ask your current lender to review your interest rate and enquire about variable and fixed-rate options for an existing customer.
– Contact a mortgage broker and ask them to compare your existing mortgage terms to what’s on the market. (Technically, you can do this research yourself, but it will mean numerous calls to multiple lenders so in reality it’s probably not the easiest route for you to take.) The more equity you have in your home, the better the new terms you’ll be offered, but you can switch even if your loan is 90% of your value.
– Your broker can check what incentives other lenders are offering to switchers. The ‘incentive’ usually covers the legal costs, as well as any possible breakage fee, although this would need to be worked out on a case-by-case basis.
– Assess the best value option for you. A broker can run calculations on the interest rates you have been offered to see the potential savings you can make. This should not be a complex process. But there is market research to be done and there are lots of forms to be filled and boxes to be ticked. A broker will do all the legwork, calculations and communicate with lenders on your behalf and explain all of your options.
– You will need to decide whether to stick with your current lender or move to a different one. Moving to a different provider will mean going through the mortgage approval process again. Changing lenders can be relatively simple if you have expert help.
– Ultimately you need to ask yourself a question: why would I stick with a lender that is not giving me the best value?
Take your time, weigh up all your options and seek expert advice to help you decide if switching is the best course of action.
How Much Can I Save?
Switching to a lower interest rate can save you a considerable amount of money in the long term depending on the rate and capital amount.
Let me give you an example of savings on an interest rate reduction of 1.6%. By switching from a 4.2% rate to 2.6%, a mortgage holder with a loan of €350,000 over 30 years can save over €300 per month, €3,732 per year or €14,897 over 4 years.
Before Switch
After Switch
Variable interest rate 4.2%
Variable interest rate 2.6%
Monthly repayment €1,712
Monthly repayment €1,401
Total savings over 4 years €14,897
In summary, it costs mortgage holders absolutely nothing to explore what ‘switching’ their mortgage can yield them in interest savings. I have sought to challenge and address any lack of knowledge or awareness by outlining the process and the financial benefit to be gained from taking this step.
People can often be put off by their first mortgage experience, which for many is stressful. However, the second time round should be a lot more straight-forward. Yes, of course there will be forms to fill, but the rewards for this bit of administration can be in the region of thousands and life changing as a result.
A joint income of almost €100,000 is now needed just to buy the cheapest new apartment in the greater Dublin area.
This is because it is not financially viable for developers to build apartments to sell to ordinary people.
They can only be built to sell if the apartments are constructed in more expensive areas where higher sales prices are achievable, a new report found.
It costs so much to build high-rise accommodation that 76pc of the units analysed were being funded and would be rented out by so-called cuckoo funds – where investors buy up an entire block of apartments directly from the developer before they hit the open market, pushing first time buyers out of the market.
The Society of Chartered Surveyors Ireland said that a first-time buying couple would require a deposit of €38,000 and a joint income of €98,000 to purchase the lowest-price apartment type.
Affordability remains a critical issue, the society said in an analysis of the cost of building apartments in the greater Dublin area.
The report found that the sales price of the two-bed apartments reviewed ranges from €375,000 for a low-rise, low spec unit in the suburbs, to €569,000 for a medium rise (nine to 15 storeys) high spec apartment in the city.
This means a first-time buyer couple would require a deposit ranging from €38,000 to €57,000, and a combined salary range of €96,000 to €146,000 to afford these, based on Central Bank lending rules.
A couple both earning €44,000 and with a combined salary of €88,000, and a deposit of €37,500, would not be able to meet the mortgage requirements of the lowest-priced apartment, a low-rise suburban unit priced at €375,000.
Just 20pc of all households enjoy earnings of more than €80,000, according to Central Statistics Office figures.
The total cost of developing medium-rise apartments now ranges from €411,000 to €581,000, including Vat.
In contrast, last July the Society of Chartered Surveyors Ireland found the cost of delivering a three-bedroom semi in the Dublin area was €371,000.
Apartment building is so expensive that cuckoo funds are funding their development and then renting them out. The investment funds have been perceived as pushing first-time buyers out of the market, but others maintain that even fewer apartments would be built without their funding.
The Society of Chartered Surveyors (SCSI) compared the viability of the traditional apartments that are built to sell with the build-to-rent model involving investment funds.
There are fewer restrictions on build-to-rent schemes relating to the apartment mix, car parking and size, following changes by the Department of Housing in 2016 and updated in 2018.
SCSI chair Paul Mitchell said pension funds and other investment funds which bought these schemes had made a major contribution to apartment supply.
He said it is so expensive to build high rise that only funds could make their development viable because they can take a long-term view of the asset.
He said it was so expensive to build apartments that “76pc of the units analysed are for rental rather than sale”.
How lockdown allowed some couples finally to buy their own homes
by Amy Molloy, Irish Independent
In a year marked with ups and downs, 2020 is ending on a good note for thousands of first-time buyers.
Ireland’s lockdown between March and June afforded some house-hunters an opportunity to save money, plan and prioritise.
With mortgage experts forecasting the first quarter of 2021 to be “the busiest in recent history”, the Irish Independent spoke to first-time buyers who recently got the seal of approval.
…
Mortgage experts believe there will be a surge in activity next year, driven mainly by first time buyers.
Vaccine confidence and a growth in savings will also be a factor says Joey Sheahan head of credit at MyMortgages.ie. Mr Sheahan said there had been a 106% growth in first time buyers applying for a mortgage in 2020.
…
Mr Sheahan also predicts lending exemptions will take centre stage from early in the year, with first time buyers in grappling for some sought after exemptions.
The Help To Buy (HTB) Scheme is a government initiative aimed at helping first time buyers of newly built properties with their deposit to buy or build their new home.
The HTB Scheme is only applicable to properties that are bought or built as the first-time buyer’s home. It is important to note that it does not cover investment properties.
You must take out at a mortgage of at least 70% of the purchase price.
You must be tax compliant.
A further specification is that you must live in the property for at least five years from the date you move in.
Let our experts here at MyMortgages.ie help you get €30,000 towards your new home purchase under the Help To Buy Scheme. (Note: This is based on a new build property for a first time buyer with a purchase price of €300,000.)
Contact [email protected] or 086 8060601 today to see if you qualify.
Applications are now open for the enhanced Help to Buy scheme, announced as part of the Government’s July Stimulus package last month.
The incentive scheme allows first time buyers purchasing or building a new house or apartment to claim back income tax or DIRT paid over the previous four years, to help with the deposit needed.
Under the enhanced HTB scheme, first-time buyers who sign a contract for the purchase of a new house or apartment, or make the first draw down of the mortgage in the case of a self-build property, between 23 July 2020 and 31 December 2020 are eligible for the increased relief of up to €30,000.
First-time buyers can now claim up to 10% of the cost of a home priced up to €300,000, and €30,000 on more expensive properties up to €500,000.
This is an increase on the maximum amount of €20,000 people could claim back under the original scheme.
Revenue said all other criteria of the scheme remain unchanged.
It said first-time property buyers who are eligible for the enhanced HTB scheme can now make their application online through myAccount or Revenue’s Online Service, ROS.
First-time buyers who signed a contract for the purchase of a new house, or who drew down the first tranche of their mortgage in the case of a self-build, prior to 23 July 2020, will not satisfy the requirements of the enhanced HTB scheme but may still apply for the original relief, up to a maximum of €20,000.
Revenue said those who have already submitted a HTB application to Revenue under the original scheme but who satisfy the requirements of the enhanced relief may cancel their original application and reapply to avail of the increased relief.
It said first-time buyers whose claims under the original HTB scheme were verified by their qualifying contractor, or solicitor for self-builds, after 23 July 2020, but who satisfy the requirements of the enhanced HTB relief can request a review of their claim by contacting Revenue’s HTB Team via MyEnquiries.
Get ready for a mortgage price war. Avant Money has just arrived in the market, offering fixed rate deals below 2% for the first time.
The company has been operating here for a number of years, providing credit cards and personal loans under the Avant Card brand. Owned by Spanish bank Bankinter, Avant Money will now offer fixed-rate mortgages starting at 1.95%, with variable rates starting at 2.5%.
Last week, the Central Bank released July mortgage data which showed that the average interest rate on new mortgages stood at 2.82%. Only Latvia and Greece have higher mortgage rates, while the average rate in the Euro area stands at only 1.35%.
Joey Sheahan is head of credit at MyMortgages.ie and is the author of The Mortgage Coach. He says that the arrival of Avant Money is great news.
“We have long seen European rates well below 2% compared to closer to 3% for Irish mortgage holders, and now, for the first time since before 2008, rates below 2% are available to homeowners in Ireland. It’s a once in a decade, maybe even two-decade opportunity, where a new lender enters the Irish market and reduces interest rates to this extent.”
The company will not be dealing directly with customers but will be using the broker network to sell their products.
Daragh Cassidy of independent price comparison and switching site Bonkers.ie, is also positive about the arrival of sub-2% rates. He points out, however, that not everybody will be able to avail of them.
“While the headline rate of 1.95% from Avant Money is certainly eye-catching and will capture all the headlines, it requires a deposit of at least 40%, which will be vastly unachievable for most first-time buyers. Most first-time buyers are only able to save a deposit of 10% or 20% max.”
“The lowest rate available to buyers with a deposit of this size from Avant Money is 2.35%, which isn’t far off the rates already available at the moment.”
He points out that first-time buyers can currently get a two-year fixed rate of 2.30% from both KBC and Ulster Bank, while KBC also offers a 2.35% fixed rate over three years.
Moreover, Avant Money has also decided against the kind of cashback offer that has proved very popular in the Irish market. The aforementioned Ulster Bank will pay €1,500 cashback on mortgage drawdowns, while KBC offers €1,500 on its three, five, and 10-year rates. So from that point of view, Avant Money isn’t offering much better value here.
“And while cashback has proven to be controversial,” says Mr Cassidy, “it can’t be denied that it’s been extremely popular with first-time buyers in Ireland who might use the funds to help pay back the ‘bank of mum and dad’ once they’ve gotten their mortgage, or to help towards buying things like furniture once they’ve moved into their new home.”
He’s also disappointed that Avant Money is only offering a fixed rate of up to seven years. Fixed rates of up to 10 years are now on offer here, while on the continent, it’s possible to fix for 20 years. More competition in this space would have been welcome.
AIB has announced cuts of up to 0.2% on its fixed-rate mortgages.
That said, we’ve already seen the established mortgage providers reacting positively to the arrival of a new competitor. AIB has just announced cuts of up to 0.2% on all its fixed-rate mortgages and Haven, which is part of AIB group, has also upped its game. The mortgage intermediary is now offering new home buyers €5,000 cashback on fixed-rate mortgages of €300,000 or more that drawdown between 21 September, 2020, and 31 December, 2021.
The rest of the banks are sure to follow suit.
The Avant Money offering may be particularly attractive to switchers, particularly those who bought their property between five and 10 years ago. They will likely have sufficient equity in the house to allow them to avail of the sub 2% rate. Because Avant has eschewed the cashback offer, however, switchers need to be aware that there will be no contribution to the legal bills typically associated with a switch. These can run to between €1,000 and €1,500.
Joey Sheahan of MyMortgages, which is one of the brokers Avant Money will be working with, advises everyone to review their current rate.
“A mortgage holder with €300,000 outstanding with 32 years remaining and loan to value of below 60% can save €158 monthly or €60,000 over the term of the mortgage based on reducing the interest rate from 2.95% to 1.95%,” he said.
Trevor Grant of the Association of Irish Mortgage Advisers also urges mortgage holders to take a fresh look at the market. “Our members regularly meet consumers who are paying between €200 and €300 a month more than they need to, which is not an effective use of their hard-earned money,” he said. “With so many offers out there, many if not most homeowners could now secure a better deal for themselves if they shopped the market.”
He said the recent release of the CSO’s property price index for July shows that there’s been no collapse in prices as a result of the Covid-induced economic contraction. In the year to July, residential property prices fell by 0.5%.
“There is still a cohort of potential homeowners that have remained fully employed throughout Covid, who are actively looking for a home, and who are successfully applying for and securing mortgages. A significant number of first-time buyers, particularly in Dublin, traditionally come from those sectors — digital, IT, financial, and public sector — that have proved resilient during Covid-19 and the prospect of buying a new home is still as real for them as it ever was.”
“The volume of applications received from first-time buyers and movers by our members, particularly over the past three months, has demonstrated a strong level of demand. As reflected in recent industry figures, there is an increased demand for market-based mortgage advice from mortgage seekers.”
But while prices are holding up, and while some of us are protected from the recession, there’s no denying the impact of Covid-19 on the mortgage market. The Central Bank’s July statistics, released last week, show that €445m was agreed in new fixed-rate mortgages in the month, a decrease of 31% on July 2019. New variable rate mortgage agreements fell even further — by 46% year-on-year — to €111m.
Consumer finance company Avant Money has begun taking applications for its products from Monday with a fixed rate mortgage offering that is the lowest on the market.
Avant Money, formerly known as Avantcard, is based in Carrick-on-Shannon in Co Leitrim and is owned by Spanish banking group Bankinter.
Its new mortgage products are now available to Irish customers, with fixed rate mortgages starting from 1.95 per cent, the lowest rate on the market.
…
“We have long seen European rates well below 2 per cent compared to closer to 3 per cent for Irish mortgage holders, and now, for the first time since before 2008, rates below 2 per cent are available to homeowners in Ireland,” he said. (Joey Sheahan)
…
Avant Money executive Chris Paul said: “We are confident that our products and rates will be appealing to Irish customers who have been under-served for far too long when it comes to their mortgages.
“Unlike other providers, we have shunned short-term gimmicks such as cashback offers in favour of products and rates geared towards providing true, quantifiable savings over the life of a typical mortgage.”
Minister for Public Expenditure Michael McGrath said the added competition was good news for Irish home buyers.
“Mortgage rates in Ireland have been falling for awhile, but remain much higher than most eurozone countries,” he said.
“News today of a new entrant with low rates and rate reductions by existing lenders is very good news for consumers.”
“It’s a once in a decade or maybe even 2 decade opportunity where a new lender enters the Irish market and reduces interest rates to this extent.” says Joey Sheahan, author of The Mortgage Coach and Head of Credit at MyMortgages.ie says
‘Never been a better time for homeowners to switch’ thanks to new mortgage provider, says Megan Martin of RSVP
“It’s a once in a decade or maybe even 2 decade opportunity where a new lender enters the Irish market and reduces interest rates to this extent”
By Megan Martin, RSVP
In response to the newcomer, AIB announced today that they were introducing a new Loan-to-Value (LTV) fixed rate for mortgages with a fixed rate as low as 2.25%.
“Avant Money’s entry into the Irish market is the best news for Irish mortgage holders. We have long seen European rates well below 2% compared to closer to 3% for Irish mortgage holders, and now, for the first time since before 2008, rates below 2% are available to homeowners in Ireland,” said Joey Sheahan, Head of Credit, MyMortgages.ie and author of The Mortgage Coach.
“It’s a once in a decade or maybe even 2 decade opportunity where a new lender enters the Irish market and reduces interest rates to this extent.
“We are delighted to be one of Avant Money’s partners and our advice to mortgage holders is now is the time to review their current mortgage, even if they have done so recently.” says Joey Sheahan, Head of Credit at MyMortgages.ie
Fixed-rate mortgages from 1.95%
Joey Sheahan, head of credit with MyMortgages.ie, welcomed Avant Money’s entry into the Irish market. “We have long seen European rates well below 2% compared to closer to 3% for Irish mortgage holders, and now, for the first time since before 2008, rates below 2% are available to homeowners in Ireland.”
“We are delighted to be one of Avant Money’s partners and our advice to mortgage holders is now is the time to review their current mortgage, even if they have done so recently.
“A mortgage holder with €300,000 outstanding with 32 years remaining and Loan to Value of below 60% can save €158 monthly or €60,000 over the term of mortgage based on reducing interest rate from 2.95% to 1.95%.”
Read the full article on Biz Plus here – bizplus.ie/avant-money-enters-irish-mortgage-market/
